07.20.23
Rank: #10 (Last year: #10)
$15.11 Billion
Prior Fiscal: $12.78 Billion
Percentage Change: +18.23%
R&D Expenditure: $605M
Best FY22 Quarter: Q4 $3.88B
Latest Quarter: Q1 $3.64B
No. of Employees: 60,000
Global Headquarters: Deerfield, Ill.
KEY EXECUTIVES:
José (Joe) E. Almeida, Chairman, President, and CEO
James Borzi, SVP, Chief Supply Chain Officer
Reazur (Reaz) Rasul, Exec. VP and Group President, Healthcare Systems & Technologies
Chris Toth, Exec. VP and Group President, Kidney Care
Steve Wallace, President, Advanced Surgery
Alok Sonig, Exec. VP and Group President, Pharmaceuticals
Daniel Wolf, SVP, Strategy & Business Development
Call it the Year of the Recall.
Product withdrawals in the medtech industry jumped 8.8% to 911 in 2022, up from 837 the previous year, according to a report by Sedgwick, a global provider of technology-enabled risk, benefits, and integrated business solutions. And while the number of impacted devices sank 27.2% to 438.7 million, the data show total Class 1 recalls hit a 15-year high, spiking 49% to 70 from a five-year annual average of 47.
Mislabeling was the main recall culprit in three of the five most recent quarters through the end of 2022, including Q4. Quality was another perpetrator, as was software, the top recall offender in Q3 and the root cause of 46 market callbacks between Q4 2021 and the end of last year, the report concluded. Software comprised 21% of Q4 2022 recalls, or 15 actions.
A quarter of all Class 1 recalls last year (18) occurred in the final three months. Among the cited products was Philips Respironics’ BiPAP and CPAP machine masks (hardly surprising), Insulet’s Omnipod DASH Insulin Management System Personal Diabetes Manager, Teleflex and Arrow International’s Arrow MAC Two-Lumen Central Venous Access Kits and the Pressure Injectable Arrowg+ard Blue Plus Three Lumen Central Venous Catheter Kits, and Baxter Hillrom’s WatchCare Incontinence Management System.
The latter product was the fifth to be pulled from the market by Baxter International last year—an unusually high total given the multinational firm had accrued only two such actions in the previous five years, U.S. Food and Drug Administration (FDA) records indicate.
News of Baxter’s recall raft garnered little attention in light of Philips Respironics’ very public, very problematic, very persistent struggle to remove millions of flawed ventilators and sleep apnea devices from circulation. Yet the relative obscurity of Baxter’s recalls last year was also by design: There was no mention of them anywhere in the company’s 2022 annual report, nor were they addressed by top management (take note, Roy Jakobs, Philips N.V. CEO and board chairman).
ANALYST INSIGHTS: After a rough 2022, CEO Joe Almeida rapidly began making changes in 2023 including spinning off their $5 billion kidney business unit, selling their biopharma processing business, and re-organizing the remainder of the company into three distinct business segments with their own leaders. These three new groups are (1) Medical Products and Therapies; (2) Pharmaceuticals; and (3) Healthcare Systems and Technologies. Once these new business units get traction, expect Almeida to become acquisitive once again to enhance their growth within these units or to add a new one. Joe is not known for “standing still” for too long.
Instead, executives focused on the macroeconomic forces (inflation, geopolitical events) and supply chain pressures that shaped Baxter’s 2022 earnings and beget both a cost reduction program and an operating model redesign (scheduled for 2023). “...as we reflect back,” former CFO James Saccaro said during an earnings call in early 2023, “it was a highly volatile and dramatic environment that we were faced with and that we were operating through over the course of the year.”
Product recalls undoubtedly contributed to that volatility and drama. All of Baxter’s Class 1 recalls occurred within a seven-month span; the first—in mid-March—pulled from the market the company’s Spectrum V8 and Spectrum IQ infusion pumps, which are used to deliver IV medications, blood nutrients, and other fluids to patients.
Baxter first disclosed problems with the pumps two days before the new year (2022), warning of their potential failure to alert clinicians to a blockage between the IV bag and pump (upstream occlusion). Potential patient harm depended on several factors including therapy delay length, medication, infusion volume/rate, and underlying status and co-morbidities, Baxter noted in its Urgent Safety Communication.
The FDA’s Class 1 recall designation was most likely prompted by the 51 serious injury reports and three patient death reports Baxter received over the previous five years. The recall affected 277,450 pumps sold between Feb. 5, 2015, and early 2022, according to the FDA.
Despite the potential for “serious adverse events,” the pumps can continue to be used provided all on-screen and safety manual instructions are followed. The company is neither replacing the pumps nor accepting their return.
Three months after the Spectrum pump callback, Baxter gained Class 1 status for its recall of the Volara lung therapy system. Initiated on April 26, 2022, the recall affected 268 devices distributed in the United States between May 28, 2020, and April 19, 2022.
Baxter recalled the Volara devices upon discovering they could prevent home-use patients from receiving adequate oxygen from the ventilators. The problem was linked to one complaint, one injury, and two deaths.
The affected products were brought to market by Hillrom, which Baxter acquired for $10.5 billion in 2021 to expand its digital health and connected care offerings.
Although the Volara devices could still be used as prescribed, Baxter advised caregivers and/or patients to monitor for signs of respiratory distress during therapy when used with a ventilator. To ensure correct usage, Baxter’s Hillrom updated the device’s instruction manual and arranged home visits with a clinical patient trainer to provide more training to customers.
Baxter’s recall woes intensified last summer with bookended market actions in June and August. The former targeted the firm’s Abacus Order Entry and Calculation software, which is used for compounding liquid medications. Baxter recalled three versions of the software over labeling mistakes, and promised to resolve the issue with an upgrade that would no longer allow users to modify label templates. The product withdrawal affected 1,114 customers.
The August recall impacted 511,728 Clearlink Basic Solution Sets with Duovent distributed between Oct. 14, 2020, and June 30, 2022. Increased customer reports about leaks prompted the field action, and the FDA warned in its Class 1 designation notice that leakage from the Clearlink sets could expose medical staff, patients, and others to potentially dangerous medications that can be poisonous or irritating. The Clearlink with Duovent system is mostly used to deliver hazardous drugs like chemotherapy to patients.
Baxter’s final Class 1 recall occurred in September 2022 with the market removal of its WatchCare Incontinence Management System (IMS) following reports the product’s radiofrequency (RF) emissions could interfere with other medical devices. The recall affected 8,550 Centrella, Progressa, and VersaCare hospital beds and disposable incontinence pads distributed from Aug. 1, 2018, to Sept. 1, 2022, according to the FDA notice.
Designed to discreetly alert caregivers to incontinence events, the WatchCare system is mainly used in critical care and medical/surgical settings.
Baxter based the WatchCare recall on 96 complaints, though no injuries or deaths were reported. The system reputedly could have caused erroneous readings or malfunctions with such critical medical equipment as infusion and insulin pumps, blood glucose sensors, fetal monitors/dopplers, telemetry devices, and bladder scanners, the FDA noted.
Baxter sought to locate and remove the WatchCare system where possible from clinical care areas.
“...top line growth was offset by weighing of macroeconomic and supply chain factors that has continued to put pressure on the cost of doing business,” Baxter Chairman, President, and CEO Jose E. Almeida said during a Q123 earnings call in February. “And as I have stressed many times, we will never pursue reduced costs in ways that could compromise our fundamental mission to save and sustain lives. But even factoring in these headwinds, we did not perform at the level we expected and demand of ourselves.”
Almeida’s disappointment seemed justified, considering the scarcity of year-over-year gains. Although total sales spiked 18.2% to $15.1 billion and gross margin rose 5.7% to $5.39 billion, Baxter lost $1.94 billion in operating income and $2.42 billion in net income last year.
Adjusted earnings slipped 3% to $3.50 per diluted share, and operating cash flow from continuing operations amounted to $1.2 billion. The Front Line Care, Patient Support Systems, and Global Surgical Solutions businesses acquired in the Hillrom deal contributed $2.9 billion to Baxter’s FY22 sales on a reported basis but were flat on a pro-forma basis after adjusting for foreign exchange.
“We’re not satisfied with our results and as such, we’re taking a number of actions to improve our performance,” Saccaro said during the Q123 earnings call. “Some of these initiatives are already underway and will be further enhanced with the cost reduction program that we are in the process of finalizing, in parallel with our operating model redesign. These actions are necessary and are expected to accelerate future performance.
We were disappointed with our performance in 2022, clearly.”
Clearly, the disappointment was rooted in the losses suffered within most product categories. Acute Therapies sustained the largest deficit—revenue fell 10% from 2021 to $701 million due to lower COVID-19-related demand for continuous renal replacement therapy systems and a 4% negative impact from foreign exchange.
Pharmaceuticals experienced the second-largest loss, surrendering 7% of its previous year’s sales to negative foreign exchange rate impacts, increased competition, and supply constraints for certain molecules. Those forces, however, were partially offset by higher international sales for inhaled anesthesia products. Pharmaceuticals proceeds totaled $2.12 billion.
BioPharma Solutions and Renal Care revenue each slid 4% to $644 million and $3.75 billion, respectively. Each were negatively impacted by foreign exchange, though BioPharma Solutions also fell victim to lower sales of manufacturing services and supply packaging for COVID-19 vaccines.
Renal Care, on the other hand, encountered lower in-center hemodialysis sales, but that decrease partially was offset by global peritoneal dialysis patient growth and $28 million of incremental revenue from a customer that failed to meet its contractual minimum purchase requirements.
Clinical Nutrition proceeds declined 3% to $931 million due to negative foreign exchange rates and lower vitamin sales, but the losses were tempered by U.S. growth in parenteral nutrition (PN) therapies and related products, including PN multi-chamber bags.
Medication Delivery sales were flat at $2.88 billion. Improved demand for IV administration sets and solutions were offset by lower infusion pump sales, negative foreign exchange rates, and sales headwinds in China driven by COVID-19 lockdowns. Revenue in this category also was thwarted last year by supply chain constraints for semiconductor components and other parts used to produce Baxter’s infusion pumps, as well as the ongoing FDA review for the company’s infusion pump distribution platform.
Advanced Surgery was the only product category to grow sales in 2022, thanks to the continued recovery in surgical procedures (particularly in Europe, the Middle East, and Africa), and competitors’ supply chain snafus. Revenue climbed 2% to $998 million.
Net sales for the Patient Support Systems, Front Line Care, and Surgical Solutions product categories were impacted by ongoing supply chain constraints—particularly those related to components used in Front Line Care offerings—as well as hospital budget constraints and delays in product installations. Patient Support Systems sales totaled $1.48 billion, while Front line Care revenue constituted $1.14 billion, and Surgical Solutions proceeds came to $304 million.
Despite disappointing sales, demand for Baxter’s products remained solid in 2022, Almeida said. Such a bullish market will be essential as the company redesigns its operating model to ensure future growth. “We think innovation’s a path forward [for] Baxter,” Almeida noted.
Baxter improved that path last year with several new product clearances and introductions, including the April FDA 510(k) clearance of its ST Set in continuous renal replacement therapy (CRRT). The ST Set is a pre-connected, disposable, extracorporeal circuit that purifies blood through a semipermeable membrane and is designed for use with the PrisMax or Prismaflex control units. The platform received FDA emergency use authorization in August 2020 to provide CRRT in acute care environments during the pandemic.
Baxter also received FDA 510(k) clearance last summer for its new Novum IQ syringe infusion pump with Dose IQ Safety software. Used together with compatible administration sets, syringes, and medications, the Novum IQ syringe pump delivers small amounts of fluid at low rates, and can deliver infusion via IV, arterial, enteral, or subcutaneous. It also can be fully integrated with hospital electronic medical records through Baxter’s IQ Enterprise Connectivity Suite.
The company ended 2022 on a positive note, giving clinicians a sneak peek at its ExactaMix Pro Automated Compounder, a product that builds on Baxter’s ExactaMix Compounding System. The latest ExactaMix iteration helps defend against cyber threats, as it is designed to communicate with file servers using validated digital security certificates. ExactaMix Pro also runs on a customized version of Linux that incorporates secure boot.
ExactaMix Pro also supports trend analysis with the ability to store up to 15 months of data—10 times that of ExactaMix. Other features include wireless capabilities to simplify device installation and file-sharing to reduce the need for Baxter onsite servicing and downtime.
$15.11 Billion
Prior Fiscal: $12.78 Billion
Percentage Change: +18.23%
R&D Expenditure: $605M
Best FY22 Quarter: Q4 $3.88B
Latest Quarter: Q1 $3.64B
No. of Employees: 60,000
Global Headquarters: Deerfield, Ill.
KEY EXECUTIVES:
José (Joe) E. Almeida, Chairman, President, and CEO
James Borzi, SVP, Chief Supply Chain Officer
Reazur (Reaz) Rasul, Exec. VP and Group President, Healthcare Systems & Technologies
Chris Toth, Exec. VP and Group President, Kidney Care
Steve Wallace, President, Advanced Surgery
Alok Sonig, Exec. VP and Group President, Pharmaceuticals
Daniel Wolf, SVP, Strategy & Business Development
Call it the Year of the Recall.
Product withdrawals in the medtech industry jumped 8.8% to 911 in 2022, up from 837 the previous year, according to a report by Sedgwick, a global provider of technology-enabled risk, benefits, and integrated business solutions. And while the number of impacted devices sank 27.2% to 438.7 million, the data show total Class 1 recalls hit a 15-year high, spiking 49% to 70 from a five-year annual average of 47.
Mislabeling was the main recall culprit in three of the five most recent quarters through the end of 2022, including Q4. Quality was another perpetrator, as was software, the top recall offender in Q3 and the root cause of 46 market callbacks between Q4 2021 and the end of last year, the report concluded. Software comprised 21% of Q4 2022 recalls, or 15 actions.
A quarter of all Class 1 recalls last year (18) occurred in the final three months. Among the cited products was Philips Respironics’ BiPAP and CPAP machine masks (hardly surprising), Insulet’s Omnipod DASH Insulin Management System Personal Diabetes Manager, Teleflex and Arrow International’s Arrow MAC Two-Lumen Central Venous Access Kits and the Pressure Injectable Arrowg+ard Blue Plus Three Lumen Central Venous Catheter Kits, and Baxter Hillrom’s WatchCare Incontinence Management System.
The latter product was the fifth to be pulled from the market by Baxter International last year—an unusually high total given the multinational firm had accrued only two such actions in the previous five years, U.S. Food and Drug Administration (FDA) records indicate.
News of Baxter’s recall raft garnered little attention in light of Philips Respironics’ very public, very problematic, very persistent struggle to remove millions of flawed ventilators and sleep apnea devices from circulation. Yet the relative obscurity of Baxter’s recalls last year was also by design: There was no mention of them anywhere in the company’s 2022 annual report, nor were they addressed by top management (take note, Roy Jakobs, Philips N.V. CEO and board chairman).
ANALYST INSIGHTS: After a rough 2022, CEO Joe Almeida rapidly began making changes in 2023 including spinning off their $5 billion kidney business unit, selling their biopharma processing business, and re-organizing the remainder of the company into three distinct business segments with their own leaders. These three new groups are (1) Medical Products and Therapies; (2) Pharmaceuticals; and (3) Healthcare Systems and Technologies. Once these new business units get traction, expect Almeida to become acquisitive once again to enhance their growth within these units or to add a new one. Joe is not known for “standing still” for too long.
—Dave Sheppard, Co-Founder and Managing Director, MedWorld Advisors
Instead, executives focused on the macroeconomic forces (inflation, geopolitical events) and supply chain pressures that shaped Baxter’s 2022 earnings and beget both a cost reduction program and an operating model redesign (scheduled for 2023). “...as we reflect back,” former CFO James Saccaro said during an earnings call in early 2023, “it was a highly volatile and dramatic environment that we were faced with and that we were operating through over the course of the year.”
Product recalls undoubtedly contributed to that volatility and drama. All of Baxter’s Class 1 recalls occurred within a seven-month span; the first—in mid-March—pulled from the market the company’s Spectrum V8 and Spectrum IQ infusion pumps, which are used to deliver IV medications, blood nutrients, and other fluids to patients.
Baxter first disclosed problems with the pumps two days before the new year (2022), warning of their potential failure to alert clinicians to a blockage between the IV bag and pump (upstream occlusion). Potential patient harm depended on several factors including therapy delay length, medication, infusion volume/rate, and underlying status and co-morbidities, Baxter noted in its Urgent Safety Communication.
The FDA’s Class 1 recall designation was most likely prompted by the 51 serious injury reports and three patient death reports Baxter received over the previous five years. The recall affected 277,450 pumps sold between Feb. 5, 2015, and early 2022, according to the FDA.
Despite the potential for “serious adverse events,” the pumps can continue to be used provided all on-screen and safety manual instructions are followed. The company is neither replacing the pumps nor accepting their return.
Three months after the Spectrum pump callback, Baxter gained Class 1 status for its recall of the Volara lung therapy system. Initiated on April 26, 2022, the recall affected 268 devices distributed in the United States between May 28, 2020, and April 19, 2022.
Baxter recalled the Volara devices upon discovering they could prevent home-use patients from receiving adequate oxygen from the ventilators. The problem was linked to one complaint, one injury, and two deaths.
The affected products were brought to market by Hillrom, which Baxter acquired for $10.5 billion in 2021 to expand its digital health and connected care offerings.
Although the Volara devices could still be used as prescribed, Baxter advised caregivers and/or patients to monitor for signs of respiratory distress during therapy when used with a ventilator. To ensure correct usage, Baxter’s Hillrom updated the device’s instruction manual and arranged home visits with a clinical patient trainer to provide more training to customers.
Baxter’s recall woes intensified last summer with bookended market actions in June and August. The former targeted the firm’s Abacus Order Entry and Calculation software, which is used for compounding liquid medications. Baxter recalled three versions of the software over labeling mistakes, and promised to resolve the issue with an upgrade that would no longer allow users to modify label templates. The product withdrawal affected 1,114 customers.
The August recall impacted 511,728 Clearlink Basic Solution Sets with Duovent distributed between Oct. 14, 2020, and June 30, 2022. Increased customer reports about leaks prompted the field action, and the FDA warned in its Class 1 designation notice that leakage from the Clearlink sets could expose medical staff, patients, and others to potentially dangerous medications that can be poisonous or irritating. The Clearlink with Duovent system is mostly used to deliver hazardous drugs like chemotherapy to patients.
Baxter’s final Class 1 recall occurred in September 2022 with the market removal of its WatchCare Incontinence Management System (IMS) following reports the product’s radiofrequency (RF) emissions could interfere with other medical devices. The recall affected 8,550 Centrella, Progressa, and VersaCare hospital beds and disposable incontinence pads distributed from Aug. 1, 2018, to Sept. 1, 2022, according to the FDA notice.
Designed to discreetly alert caregivers to incontinence events, the WatchCare system is mainly used in critical care and medical/surgical settings.
Baxter based the WatchCare recall on 96 complaints, though no injuries or deaths were reported. The system reputedly could have caused erroneous readings or malfunctions with such critical medical equipment as infusion and insulin pumps, blood glucose sensors, fetal monitors/dopplers, telemetry devices, and bladder scanners, the FDA noted.
Baxter sought to locate and remove the WatchCare system where possible from clinical care areas.
‘Not Satisfied With Results’
Though Baxter’s finances held up relatively well in light of its recall troubles, company bigwigs expressed their disappointment with the firm’s fiscal 2022 performance.“...top line growth was offset by weighing of macroeconomic and supply chain factors that has continued to put pressure on the cost of doing business,” Baxter Chairman, President, and CEO Jose E. Almeida said during a Q123 earnings call in February. “And as I have stressed many times, we will never pursue reduced costs in ways that could compromise our fundamental mission to save and sustain lives. But even factoring in these headwinds, we did not perform at the level we expected and demand of ourselves.”
Almeida’s disappointment seemed justified, considering the scarcity of year-over-year gains. Although total sales spiked 18.2% to $15.1 billion and gross margin rose 5.7% to $5.39 billion, Baxter lost $1.94 billion in operating income and $2.42 billion in net income last year.
Adjusted earnings slipped 3% to $3.50 per diluted share, and operating cash flow from continuing operations amounted to $1.2 billion. The Front Line Care, Patient Support Systems, and Global Surgical Solutions businesses acquired in the Hillrom deal contributed $2.9 billion to Baxter’s FY22 sales on a reported basis but were flat on a pro-forma basis after adjusting for foreign exchange.
“We’re not satisfied with our results and as such, we’re taking a number of actions to improve our performance,” Saccaro said during the Q123 earnings call. “Some of these initiatives are already underway and will be further enhanced with the cost reduction program that we are in the process of finalizing, in parallel with our operating model redesign. These actions are necessary and are expected to accelerate future performance.
We were disappointed with our performance in 2022, clearly.”
Clearly, the disappointment was rooted in the losses suffered within most product categories. Acute Therapies sustained the largest deficit—revenue fell 10% from 2021 to $701 million due to lower COVID-19-related demand for continuous renal replacement therapy systems and a 4% negative impact from foreign exchange.
Pharmaceuticals experienced the second-largest loss, surrendering 7% of its previous year’s sales to negative foreign exchange rate impacts, increased competition, and supply constraints for certain molecules. Those forces, however, were partially offset by higher international sales for inhaled anesthesia products. Pharmaceuticals proceeds totaled $2.12 billion.
BioPharma Solutions and Renal Care revenue each slid 4% to $644 million and $3.75 billion, respectively. Each were negatively impacted by foreign exchange, though BioPharma Solutions also fell victim to lower sales of manufacturing services and supply packaging for COVID-19 vaccines.
Renal Care, on the other hand, encountered lower in-center hemodialysis sales, but that decrease partially was offset by global peritoneal dialysis patient growth and $28 million of incremental revenue from a customer that failed to meet its contractual minimum purchase requirements.
Clinical Nutrition proceeds declined 3% to $931 million due to negative foreign exchange rates and lower vitamin sales, but the losses were tempered by U.S. growth in parenteral nutrition (PN) therapies and related products, including PN multi-chamber bags.
Medication Delivery sales were flat at $2.88 billion. Improved demand for IV administration sets and solutions were offset by lower infusion pump sales, negative foreign exchange rates, and sales headwinds in China driven by COVID-19 lockdowns. Revenue in this category also was thwarted last year by supply chain constraints for semiconductor components and other parts used to produce Baxter’s infusion pumps, as well as the ongoing FDA review for the company’s infusion pump distribution platform.
Advanced Surgery was the only product category to grow sales in 2022, thanks to the continued recovery in surgical procedures (particularly in Europe, the Middle East, and Africa), and competitors’ supply chain snafus. Revenue climbed 2% to $998 million.
Net sales for the Patient Support Systems, Front Line Care, and Surgical Solutions product categories were impacted by ongoing supply chain constraints—particularly those related to components used in Front Line Care offerings—as well as hospital budget constraints and delays in product installations. Patient Support Systems sales totaled $1.48 billion, while Front line Care revenue constituted $1.14 billion, and Surgical Solutions proceeds came to $304 million.
Despite disappointing sales, demand for Baxter’s products remained solid in 2022, Almeida said. Such a bullish market will be essential as the company redesigns its operating model to ensure future growth. “We think innovation’s a path forward [for] Baxter,” Almeida noted.
Baxter improved that path last year with several new product clearances and introductions, including the April FDA 510(k) clearance of its ST Set in continuous renal replacement therapy (CRRT). The ST Set is a pre-connected, disposable, extracorporeal circuit that purifies blood through a semipermeable membrane and is designed for use with the PrisMax or Prismaflex control units. The platform received FDA emergency use authorization in August 2020 to provide CRRT in acute care environments during the pandemic.
Baxter also received FDA 510(k) clearance last summer for its new Novum IQ syringe infusion pump with Dose IQ Safety software. Used together with compatible administration sets, syringes, and medications, the Novum IQ syringe pump delivers small amounts of fluid at low rates, and can deliver infusion via IV, arterial, enteral, or subcutaneous. It also can be fully integrated with hospital electronic medical records through Baxter’s IQ Enterprise Connectivity Suite.
The company ended 2022 on a positive note, giving clinicians a sneak peek at its ExactaMix Pro Automated Compounder, a product that builds on Baxter’s ExactaMix Compounding System. The latest ExactaMix iteration helps defend against cyber threats, as it is designed to communicate with file servers using validated digital security certificates. ExactaMix Pro also runs on a customized version of Linux that incorporates secure boot.
ExactaMix Pro also supports trend analysis with the ability to store up to 15 months of data—10 times that of ExactaMix. Other features include wireless capabilities to simplify device installation and file-sharing to reduce the need for Baxter onsite servicing and downtime.